SYDNEY, June 7 (Reuters) - Malaysia's central bank will
eventually expand its new Islamic money market funding facility
to allow trades of the instrument between commercial banks,
while introducing longer tenors, the central bank said on
Thursday.

The central bank announced last week that it was launching a
collateralised murabaha facility through which Islamic banks
could obtain funds from the central bank by pledging high
investment grade sukuk as collateral. The new facility aims to
aid Islamic banks' liquidity management.

The central bank told Reuters in an email on Thursday that
use of the collateralised murabaha instrument would later be
expanded so that banks could trade it between themselves in the
interbank market. It did not give a time frame.

Currently, the facility is for overnight funding but it will
be extended to longer tenors in the near future, the central
bank said without giving a precise date.

Funding is only in ringgit but collateral can be denominated
in other currencies, which could encourage the participation of
foreign banks, many of whose sukuk holdings are mostly U.S.
dollar-denominated.

Currently, Islamic banks can obtain funds from the Malaysian
central bank through a deferred-payment sale agreement, but this
structure is not considered permissible by some sharia scholars
outside Malaysia so banks from the Gulf have been reluctant to
use it. The new facility is likely to be more acceptable to
banks from the Gulf, bankers believe.